05-31-2015, 02:33 PM
The idea behind the Payout Ratio (dividend per share/earnings per share) is great, but doesn't provide empirical results that justify the headache of individual stocks.
The dynamics of dividends are significantly more complicated than two metrics in a ratio. Earnings are a huge factor, but a company also funds itself through long-term debt. Dividends paid are obviously a factor, but capital expenditures should be the first priority for using capital.
A dynamic payout ratio which better analyzes a company’s ability to increase dividends is needed to fulfill due-diligence requirements.
The dynamics of dividends are significantly more complicated than two metrics in a ratio. Earnings are a huge factor, but a company also funds itself through long-term debt. Dividends paid are obviously a factor, but capital expenditures should be the first priority for using capital.
A dynamic payout ratio which better analyzes a company’s ability to increase dividends is needed to fulfill due-diligence requirements.